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Down to Earth IFIs Update

No. 17, August 2001

IMF ready to disburse $400 million with a new Letter of Intent for the Megawati administration

On July 23, 2001, the day Megawati Soekarnoputri was sworn in as the new Indonesian President, the IMF expressed its readiness to work with the new government. This means that a new Letter of Intent (LoI) will be soon submitted by the new Government to the IMF. Rumors say that the draft of the new LoI was ready, waiting for a new government to be installed. According to the Fund's standard of operations, draft LoI are not disclosed to the public nor consulted with any stakeholders, including the Parliament. However, with the Fund's determination to avoid meddling with non macro-economic issues in which the Fund has no expertise, it is very likely that the items under the new LoI will be much shorter and address only key areas of reforms and leave other aspects of reforms to other institutions like the World Bank and the ADB.

Megawati is seen as more willing to work with international institutions like the Fund and regional banks than her predecessors and will do more to please them. The Fund has delayed the disbursement of US $400 million since last December. This decision created huge impacts in investor confidence in the country and problems with the current budget. Her economic advisors are well aware of the need of foreign money to sustain the country's economy as well as for the short and medium term political interest of the party to stay in power. Accumulation of foreign debts as well as the adverse impacts of structural and sectoral reforms mandated by the IMF, World Bank, and others may not be of immediate concern to Megawati's economic team. If this is so, the country's long term interests and the protection of the people's interests are at stake.

In the meantime, the IMF Representative to Indonesia, John Dodsworth, who has been in charge of the Fund's office in Jakarta during the Habibie and Wahid administrations, will end his current assignment at the end of July 2001. His replacement will be David Nellor, an Australian. Mr. Nellor is presently the Fund's Assistant Director for Asia and Pacific.

Source: Dow Jones Newswires July 23, 2001; Koran Tempo, July 25, 2001.

People's demands and mobilization during World Bank/IMF Annual Meetings 2001

Civil society groups and non-governmental organizations all over the world are calling for the creation of a neutral and credible "Truth Commission," composed of individuals with a demonstrated commitment to poverty eradication, to investigate the actions and impacts of the IMF and the World Bank. The Truth Commission's findings must then be respected and acted upon by the governments, institutional officials, and civil society organizations concerned with economic development and international financial policies.

Specifically, the areas of investigation demanded by these groups include: debt cancellation; the termination of structural adjustment programs and reparation of adverse impacts; transparency and public disclosure of key World Bank and IMF documents; reparations to peoples relocated and otherwise harmed by large projects (such as dams); and the compensation of governments for loan repayments made on projects which World Bank evaluations rank as economic failures. The demands call for the termination of World Bank Group funding to the private sector and the closure/privatisation of the private sector arms of the World Bank Group, the International Finance Corporation (IFC) and the Multilateral Investment Guarantee Agency (MIGA). They are also calling for the investigation and prosecution of agencies and individuals allegedly involved in corruption within the World Bank Group and IMF as well as their accomplices in borrowing countries and in private banks. Finally, the Truth Commission would assess the future of these institutions.

These demands were formulated by the "50 Years Is Enough Network" (a US-based coalition of over 200 organizations committed to the fundamental transformation of the IMF and World Bank). They were developed through consultations with the members of its South Council (representing economic justice organizations in 13 countries in Asia, Africa, Latin America, and the Caribbean) and others. These demands are being made in advance of the "Mobilization" to take place during the IMF/World Bank Annual Meetings in Washington DC, October 2-3, 2001.

Source: Contact: or phone +1-202-463-2265.

For update on the calendar of events around the World Bank/IMF Annual Meeting 2001, visit

US$ 422.77 million new World Bank loans and credits approved

The World Bank has just approved new loans and credits to Indonesia for the Second Kecamatan Development Project and the Provincial Health Project, worth US$320.2 million and US$102.57 million, respectively. These loans and credits bring the total amount of World Bank lending in Indonesia to US$492.7 million during the 2001 Fiscal Year.

The World Bank Group provides middle-income countries with loans which charge interest rates similar to the London Interbank Offering Rate (LIBOR). The loans are channelled through the Bank's arm called the International Bank for Reconstruction and Development (IBRD). The Bank supports low-income countries with credits with zero interest rate and longer grace and repayment periods than loans. These credits are channelled through the Bank's International Development Association (IDA). Some countries like Indonesia are eligible for IDA due to their low GNP per capita, but also creditworthy for some IBRD borrowing.


Nominations for United States Executive Directors to the MDBs

After a long wait, the Bush administration has recently released its nominations for the positions of U.S. Executive Director to the multilateral development banks (MDBs) and the IMF. Appointed by the President of the U.S., the nominees will then be confirmed by the Senate. At this juncture, the Senate has yet to confirm the nominations. The nominees for the IMF, World Bank, and ADB and summary of their backgrounds are as follows:

Being the largest shareholders in these institutions, the U.S. plays a key role in decision-making and influences the trends of the institutions. Although US Executive Directors take commands from the US Treasury, the personal interests and background of the Executive Directors themselves can have an influence on how he or she perceives and carries out his or her role in the institution.


Small farmer well-being and forest cover affected by the economic crisis

A five-person team led by Dr. William D. Sunderlin has recently published an article in World Development 29(5):767-782 titled "Economic Crisis, Small Farmer Well-being and Forest Cover Change in Indonesia." The article is based on field research conducted in 1,050 Indonesian households to understand the effects of the Asian economic crisis on small farmers outside Java and their forest-clearing practices.

The research finds that most farmers perceived themselves as worse off during the crisis than before, which challenges the claim that farmers with export income would be better off. This claim is based on the assumption that due to the appreciation of strong currencies against the Rupiah since the Asia financial crisis, farmers exporting their agricultural products have earned more.

It also concludes that forest clearing by farmers increased significantly during the crisis to expand rubber holdings and other tree crops, with farmers aiming to increase future income security. Among the important policy lessons found in this research are that crop diversification and targeted aid can minimize impoverishment and avert increased forest clearing following macroeconomic destabilization.

Contact and request for copies: Ambar Liano

Visit the World Development website at

Dutch banks' environmental criteria not implemented in Indonesia Dutch banks including Rabobank, ING Group and ABN-AMRO claim that they have long incorporated environmental criteria in their investment decisions. A case study to generate further company-specific and field-level information about the performance of the clients of Dutch banks was developed by the NGOs AIDEnvironment and LBB Puti Jaji on PT Matrasawit in East Kalimantan. PT Matrasawit is a wholly-owned subsidiary of PT SMART, an Indonesian holding company that has repeatedly benefited from a range of financial services provided by Rabobank, ING Group, and ABN-AMRO, from 1995 until today.

The area belonging to PT Matrasawit comprised approximately 50% lowland tropical rainforest when the company began to operate. PT Matrasawit converted 2,500 hectares into an oil palm plantation in primary forest habitat for the orangutan, an endangered and protected species in Indonesia. The study also found that PT Matrasawit had cleared the banks of some small streams, causing soil erosion and blocking water drainage. This led to an increase in the incidence of malaria among local villagers and company workers. Also, in 1999, local courts found the company guilty of illegal burning.

Social conflicts among the local people and between the local people and the company have been generated by the company's reckless activities. The indigenous Dayak people claim that PT Matrasawit has burned their forest gardens and coconut plantations. They also have not received compensation for their lands nor have they benefited from a smallholders' oil palm scheme promised by the company.

The case study reconfirms that there is a huge gap between the Dutch lenders' claim of sustainable performance of their clients and the findings of the case study. The reality on the ground shows that, in the oil palm case in East Kalimantan at least, some Dutch financiers are indeed funding further tropical forest destruction.

Source: PT Smart corporation Case Study. PT Matrasawit. Relations between Rabobank, ING and ABN-AMRO and forest destruction and poverty in East Kalimantan, Indonesia. By AIDEnvironment and LBBPuti Jaji. April 2001.

Contact: AIDEnvironment and LBBP Puti Jaji

Ten-year wait for compensation for Japanese ODA-funded Kotopanjang hydropower project

The Kotopanjang Hydropower Project in West Sumatra was funded by, among others, 30 billion yen (approximately USD 243 million at current value) from the Japanese Official Development Assistance (ODA) through the Japan Bank for International Co-operation (JBIC) (formerly called the Overseas Economic Co-operation Fund (OECF). Since it began about ten years ago, the project has forcibly resettled about 23,000 people from 10 villages in the West Sumatra and Riau provinces. Both the Indonesian government's project executing agency and the OECF/JBIC considered the resettlement successful, even labelling it a "good practice". This claim has since been proven false. The affected communities, now living in their resettled areas, have still not been given the rubber plantations promised by the Indonesian government as compensation. They also have no clean water. The communities have brought the case to court with no clear results.

Japanese NGOs have worked on the case since the project's resettlement problems were raised internationally. Recently, Professor K. Sumi of Japan's Niigata University made a field visit to the project area and resettlement site. He then worked with the Network for Indonesian Democracy, Japan (NINDJA), Sophia University's Institute for Asian Cultures, and the Pacific Asia Resource Center (PARC) to campaign for the affected communities' neglected rights for proper compensation. In late July 2001 three local leaders will be visiting Japan. They are Masrul Saim, who is West Sumatra's Tanjung Pauh Village Head, Armen Muhammad of Taratak Foundation in Bukit Tinggi, West Sumatra, and Adhel Yusirman of the Bukit Tinggi Legal Aid Office. The response from JBIC to the peoples' demands remains to be seen.

Contact: mailto:NINDJA and Prof. K. Sumi at phone/fax: + 81 25 231 3569.

New JBIC Loans for Rural Development The Japan Bank for International Cooperation (JBIC) has provided a 46.35 billion yen (US$375.5 million) loan to the Indonesian government to finance several rural projects in Sumatra, Java and Kalimantan. 7.64 billion yen of the loan is earmarked for the Second Batang Hari Irrigation Project in West Sumatra and Jambi provinces, and 18.68 billion yen is allocated to the Second Water Resources Development Project in West Sumatra, Java and Kalimantan. The remaining 20.04 billion yen has been allocated to the Third Rural Areas Infrastructure Development Project, designed to improve basic infrastructure such as roads, bridges and sanitation facilities in rural areas.

Source: The Jakarta Post, July 6, 2001

Visit JBIC website

This IFI update is published by Down to Earth, the International Campaign for Ecological Justice in Indonesia.

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